Elon Musk gets squeezed in Delaware

One thing to start: Four firms, McKinsey, BCG, Teneo and Michael Klein’s advisory boutique, have been accused of failing to comply with a US congressional subpoena of documents related to their work with Saudi Arabia’s sovereign wealth fund.

And a McKinsey CEO to start: Bob Sternfels has been re-elected as global managing partner of McKinsey after a tougher than expected contest that exposed divisions among the consultancy’s senior partners about his leadership style.

In today’s newsletter:

• The lawyers clawing Musk for cash

• Julius Baer is rocked by Signa

• Chevron hits a speed bump

Meet the lawyer who hunted down Musk

Greg Varallo is a shareholder rights lawyer at Bernstein Litowitz Berger & Grossmann who loves hunting ducks and geese.

On Tuesday he landed potentially the biggest kill of his career — Elon Musk’s golden goose.

Varallo convinced a Delaware judge that Musk’s $56bn pay package at his electric-car company Tesla should be voided, landing a massive dent in the billionaire’s net worth (don’t worry, he’s still rich).

Kathaleen McCormick, the Delaware judge overseeing the case, held that Musk controlled the board through his personality and close relationships with its members, so the process to award him the largest-ever corporate pay package in 2018 couldn’t possibly have been fair.

While Musk is at risk of losing billions, Varallo’s firm stands to make them. Bernstein Litowitz has the right to ask the court to pay it up to one-third of the “benefit conferred” by the ruling.

How much that is exactly will be up to the court and there’s a bit of a balancing act to perform.

Musk’s stock-based incentive plan was originally valued at $2.6bn, but it was tied to Tesla’s financial performance and today is worth $56bn. The court will probably determine that the value restored to shareholders is somewhere between the two numbers, and Bernstein Litowitz will get a chunk of that.

So the lawyers who argued that Musk’s performance-linked pay is egregious stand to make a record-breaking sum based on their success in court.

This has upset a lot of people. Musk, hate him or love him, has created enormous shareholder value at his companies and has been well paid for it. Even in cases where he has destroyed value, like X, no shareholders have been hurt — just a few bankers.

The bigger picture is that Delaware chancery courts are there to make sure company boards and management are behaving appropriately. McCormick decided Musk didn’t need tens of billions of dollars in pay to incentivise him to turn up to work. Instead, she saw it as a generous act by a friendly board.

That could have consequences for other companies with superstar founders and CEOs. But Varallo can’t claim a win just yet. The case has to survive appeal to prove this was no wild goose chase.

The other crisis-hit Swiss lender

Philipp Rickenbacher was installed as chief executive of Julius Baer four and a half years ago with a simple objective: play it safe.

The 133-year-old Swiss bank had interviewed Credit Suisse’s then hotshot head of wealth management, Iqbal Khan, for the role, but ended up settling on the relatively unknown insider Rickenbacher.

Julius Baer had a turbulent few years, which included regulatory probes into its dealings with Fifa, world football’s governing body, and a separate alleged case of corruption involving Petróleos de Venezuela, a state-owned oil and natural gas group.

The bank would later withhold millions of dollars in bonuses from the two previous CEOs, Boris Collardi and Bernhard Hodler, after it was sanctioned by Finma, Switzerland’s financial regulator, over a South American money-laundering scandal.

For the best part of four years, Rickenbacher appeared to be the safe pair of hands the bank badly needed. It emerged stronger from the Covid-19 pandemic and notched up the two best annual results in its history.

But on Thursday morning, the bank announced Rickenbacher was leaving after it wrote off its entire $700mn exposure to beleaguered Austrian luxury property developer Signa.

The loss followed an ill-fated foray by Julius Baer into private lending, a business that chair Romeo Lacher said had grown much quicker than its risk systems could cope with.

As chief executive, and with Finma investigating Julius Baer’s exposure, Rickenbacher was the fall guy.

Less than a year after Credit Suisse finally succumbed following a decade of crises, Switzerland has a new scandal-hit lender.

Chevron face sceptics after its Hess mega-deal

Things were going so well for Chevron last July that the company’s board waived its mandatory retirement age of 65 for CEO Mike Wirth, citing the “extraordinary job” he did in overseeing record profits following a huge spike in oil prices linked to Russia’s invasion of Ukraine.

But just seven months later the second-largest western oil company is going through a rocky patch because of operational problems and an all-stock mega-deal, the FT reports.

The California-based driller is facing operational headaches at two of the company’s most important assets in Kazakhstan and the US — as well as investor concerns over its $53bn deal to buy Hess.

Shares in Chevron fell 17 per cent last year, compared to a 9 per cent drop for ExxonMobil, its larger US rival. The Sage of Omaha, Warren Buffett, sold off some of Berkshire Hathaway’s Chevron holdings in 2023 and some analysts have soured on the stock.

They pinpoint lingering problems at the $45bn expansion of the Tengiz oilfield in Kazakhstan, which has faced repeated delays and cost overruns.

The other is the Permian Basin — the vast oilfield that stretches across west Texas and New Mexico — where production increases have slowed amid constraints on fracking imposed by local authorities.

Meanwhile, some analysts are asking questions about the price Chevron paid for Hess, which has offshore operations in Guyana.

“Due to the uncertainty over future oil demand in the years ahead with the energy transition, investors increasingly value the flexibility that short-cycle shale provides in terms of quick returns when compared to Guyana’s deepwater offshore project that will require a lot of investment before payback,” said Andrew Gillick, an analyst at Enverus.

Though Chevron’s deal for Hess came quickly on the heels of Exxon’s $59.5bn deal to buy Pioneer Natural Resources, Wirth resisted the notion he was responding to his primary rival. But facing scepticism, could the solution be even more deals?

Job moves

• Elliott Management, the US-based hedge fund, has promoted Nabeel Bhanji, Jason Genrich and Marc Steinberg to the partner rank, according to people familiar with the matter, a rare expansion of the top position at the fund tightly run by its founder Paul Singer. The firm now has 14 equity partners in total, the people said.

• Union Square Advisors, a tech-focused investment bank, has appointed Michael Meyer to the newly created role of chief executive. He will also continue to be head of capital markets.

Smart reads

Pirate panic Security crises on the high seas are causing problems for the international economy, the Wall Street Journal writes.

Bare-knuckle brawling Fund giant Pimco says cracks in the booming asset class that is private credit could appear as soon as this year, Bloomberg reports.

Trott stuff Byron Trott, perhaps the most successful investment banker of his generation, has helped Buffett, the Pritzkers, the Waltons, and the Mars families. Can he work the same magic for Shari Redstone, Puck asks.

News round-up

KKR raises record $6.4bn for Asia fund in infrastructure rush (FT)

Volvo Cars to stop funding Polestar electric sports car business (FT)

Vivendi’s Canal+ offers to buy biggest pay-TV group in Africa (FT)

Arc’teryx apparel maker Amer Sports raises less than hoped in IPO (FT)

Deutsche Bank pledges to boost dividend and cut jobs (FT)

BNP Paribas shares fall after downgrade to profit target (FT)

Greece is said to raise €785mn in IPO of Athens airport (Bloomberg)

CVC-owned perfume retailer Douglas is said to kick off IPO soon (Bloomberg)